This study proposes a new method, the electrical arc discharge system, for preparing a nanocomposite fluid with the basic ingredients of Cu, Fe and O. The proposed system has the advantages of a high-power electric arc heating system, excellent stability of the electric arc, and well-developed control technology. In the fabrication process, the positive electrode uses a copper rod and the negative electrode an iron rod, and the two electrodes are processed in the insulating processing liquid. The nanocomposite fluid generated by the synthesis system is analyzed by morphological analysis, heat transfer analysis, magnetism analysis, and rheological testing. The experiment generates satisfactory results for nanocomposite fluid with an average particle diameter of 25 nm by process conditions of vacuum pressure of 30 torr, peak current of 7 A for arc discharge, breakdown voltage of 250 V and duration time of 10 micros. The experimental results showed that the nanocomposite fluid is composed of Fe, FeO, Cu, and Cu2O. SEM images show that Fe and Cu are spherical, FeO is square, and Cu2O is ovoid. For the heat transfer experiment, the experimental temperature was set at ambient temperature of 30 degrees C, the average heat transfer coefficient is 0.708 W/m oC, which is 16.3% higher than that of deionized water. The magnetism test shows that the magnetic retentivity of the fluid is 47.27 (Oe), which makes it a soft magnetic fluid.